Merger and acquisitions business paying off big

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We’ve seen more and more mergers and acquisitions lately, and there doesn’t appear any sign of a slowdown on the horizon. The business is lucrative. Morgan Stanley announces record earnings, with much of the profit being derived from M&A. Each day, more and more deals are floated across corporate desks.

Are all these M&As good for business? For sure they are a part of an efficient economic system. A case in point is a recent takeover of MayTag and WhirlPool. The companies had nearly identical operations and competed in nearly identical verticals. Coupling the two companies leaves WhirlPool much stronger, and they’re able to maintain the MayTag brand name for marketing while combining their manufacturing and marketing efforts, ensuring a higher net margin in that product segment. The downside is for the people who lose their jobs, but the companies and shareholders generally come out ahead.

Cost cutting and combining operations is a good enough reason to merge. Add to that the fact that you “get rid of a competitor” and you have the business equivalent of the interception returned for a touchdown. The momentum gained by the acquiring company can be huge.

Attractive fees are making more and more takeovers possible. Companies like Morgan Stanley always keep playing a hot hand, and the fees their bringing on on these deals will continue to help them and others search for more and more opportunities. This means investors should also be on the lookout for companies that are takeover targets. The types of companies you look for are generally market laggards who are profitable, but have very little growth. A company that can be eliminated in favor of a more nimble competitor can rise rapidly on the day of the trade. If you happen to be invested, you stand to gain big. An eagle eye for these types of deals should pay off big.

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